The property tax reform is being pushed forward in a proactive way, China’s former finance minister Lou Jiwei (楼继伟) reiterated at a think tank seminar last Friday. Lou was removed from the finance minister’s position this Monday due to age limit for ministerial level officials, but Xiao Jie （肖捷）, the finance minister who replaces Lou, is predicted to carry forward Lou’s stance on adopting the property tax that has been widely applied in developed countries.

Lou is believed to have commented at this year’s G20 central banks and finance ministers’ conference that adoption of property tax must be pushed in a “determined” way. As early as 2005, Xiao made a keynote speech titled Reform of China’s fiscal and tax system, manifesting his determined attitude toward using property tax as an instrument to regulate the real estate market in China. But Xiao did not elaborate his views on the issue, which is interpreted by the industry as the finance minister lacking a detailed blueprint to advance the process.

“As long as there is sufficient employment, economic development and revenue growth, with eco-system being improved continuously, slight economic slowdown accords with the scientific development,” Xiao wrote in a 2015 People’s Daily article.

Opponents of property tax argue that it would affect the development of the real estate market. Given its important contribution to GDP, a slowdown in property market is seen as a drag on economic growth. However, analysts predict there is no possibility the new finance minister would resist the application of property tax.

Would the property tax have a positive effect on house prices? That’s a widespread concern. Experts say the property tax reform aims to transfer the levy on those who purchase houses to those who own houses, under which system, speculation would be contained and existing properties would flow into the market to change the current uneven supply and demand.

Yuan Gang, a researcher with the Center for China in the World Economy, said limitations on housing loans and purchases could hardly depress investment and speculation in the market; but property tax would shield real estate market from investors by increasing their cost of purchase.

For the property tax to be applied nationwide, legislation would be the first hindrance and the reform is now at the stage. Liu Shangxi, president of the Chinese Academy of Physical Sciences, said that the National People’s Congress, China’s national legislature, is now working on related laws.

But it is not certain when the property tax legislation will be completed.

Jia Kang, president of the Chinese Academy of New Supply-side Economics, predicts that in the next five years, there is 50% possibility that the property tax could be rolled out. “The central government announced that it would speed up the legislation, while in fact it did not do that due to concerns that China has 50% possibility of slipping into the “Middle-Income Trap”.

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